Circular economy is now considered the business model by which companies should strongly abide to move towards more sustainable standards.
Technological progress since the beginning of the Industrial Revolution has made enormous global economic growth possible. As a result of the transition from an agrarian society to an industrial society, the consumption of resources also increased steadily. Between the years 1900 and 2009 alone, resource consumption increased by a factor of ten worldwide. In this first of periodical weekly articles about circular economy within the EU, we look at what is it and how does it differentiate with the current business model.
What is the underlying problem of an increasing consumption of resources and how does the European Union (EU) plan to address it?
The Problem With The Current System
The existing economic system is defined as a linear economic system. Characteristic of this system is that the end of the value chain is reached after the product has been consumed and then disposed of. The focus thereby is on maximizing the production and consumption of products, which led to the expression of the so-called “throw-away society”. This goes hand in hand with an immense extraction of resources, causing damage to the climate and human health. The 1972 “Report of the Club of Rome on the State of Humanity” stated that growth is limited and that our growth strategy needs to change. Continuing industrialization with its accompanying environmental pollution and exploitation of natural resources, would bring our linear economic system to its limits in the long term.
The scarcity of resources on our planet is increasing due to the growing world population and the resulting increase in demand. The rising income of an enlarging middle class further increases demand and thus the material requirements for production. From an economic point of view, the prices of raw materials depend on the relationship between supply and demand. When the amount supplied is smaller than the amount demanded, it leads to higher prices. So demand for raw materials is growing steadily, but at the same time the limited availability of raw materials is consistently shrinking. It is precisely this uncertain availability of raw materials that leads to price fluctuations, which again increases the risks associated with the supply of raw materials. Historically, raw material prices have been rising overall and the resulting higher product prices affect the poorer sections of the population in particular. An increasing price trend will be further intensified in the future by diminishing reserves and by cost-intensive and complex methods in the extraction of resources that are difficult to access. Even if new technologies increase resource efficiency in extraction and production, this does not eliminate the underlying problem of industry’s dependence on raw materials with limited reserves. Currently, 60% of Europe’s fossil fuel demand is imported, resulting in a high dependency on non-European producers. With the globally decreasing supply of limited resources, companies face the long-term risk of a stagnating resource supply and high volatility of resource prices.
More resources than ever are needed to meet the global increase in consumption. But the resulting resource extraction pollutes the climate and ecosystems, leads to economic uncertainties and limits the growth of an economy. Researchers at the University of Cambridge predict that if the temperature continues to rise, there will be a global decline in GDP of 7% by the year 2100. An ecologically, socially and economically sustainable economy in which resources are used efficiently and people and the environment are not further negatively affected has therefore become the focus of politics.
Sustainability Through A Circular Economy
The European Commission assumes that sustainable resources use can reduce the extraction of resources worldwide by 28% and greenhouse gas emissions by up to 63% by 2050. By improving resource efficiency, the European Union seeks to achieve its objective of a sustainable economic development. In this context a concept that is becoming more and more significant is the circular economy. Within a circular economy, increasing resource efficiency refers to reducing the number of raw materials needed to manufacture a product by closing and slowing down product cycles along the value chain. In contrast to the disposal of products and materials in a linear system, the aim is to preserve their value and thus sustainably decouple economic growth from resource consumption and the associated environmental impacts.
Fig.1 This graph reveals especially in resource- and energy-intensive sectors, an enormous potential for reducing emissions within the European Union is assumed in the case of an optimal circular scenario by 2050.
Given the urgency of addressing the current global challenges, the European Union published the “Action Plan for a Circular Economy” in 2015. This sent a signal to the economic players and society in the European region that the European Union intends to transform the European economy. Based on this, a “New Action Plan for a Circular Economy” was published as part of “The European Green Deal” in 2019. The Green Deal is supposed to be the European answer to climate change and is intended to create a sustainable growth strategy for Europe. The new action plan is part of the new sustainable growth strategy for Europe and aims to decouple the European Union’s economic growth from resource use.
The plan intends to make material and energy savings possible, as well as, a reduction in waste in landfills through recycling and waste prevention methods. The new action plan also focuses on promoting sustainable business models and enabling sustainable consumer choices. From a purely economic point of view, it is worthwhile to keep products or raw materials in the loop if the costs of doing so are lower than in the case of linear disposal and new production. Besides the economic reasons, the purpose of a circular economy can be understood to be more social. Sustainable economic activities must, above all, maximize human well-being and have a positive impact on the planet’s ecosystems. The fundamental challenge of an optimal sustainable growth strategy is therefore not only to address economic growth and competitiveness, but also to include the social and environmental dimension. The European Commission defines increasing environmental sustainability in the framework of the Green Deal with the transition to a climate-neutral continent by 2050. Social progress is defined in the Green Deal as an opportunity to create new jobs and as a chance to offer benefits to all people and regions on the way to a sustainable Europe.
European policy provides a framework for achieving the goals associated with a circular economy, it is for them to plan and implement measures. Even though the European Union has many competences, measures must also be implemented at national level, which means that national policies also have a high level of responsibility. The consumer and the producer will also have a key role in contributing to the transition. The decisions of all these actors will significantly influence the outcome.
It is assumed as certain that a coherent and consistent implementation of measures can lead to more economic growth and benefits for people and the environment compared to the mass production of a linear economic system.
The Next Articles
For an optimal evaluation of a circular economy, I will examine in the upcoming articles which measures actually have a positive impact on the different dimensions of sustainability. I will also look at which enabling factors for a transformation need to be in place, such as digitalization. The underlying question is whether the planned measures of the European Commission are sufficient to break up existing patterns and overcome all barriers to enable successful implementation. The aim of this series of articles is to identify which Green Deal measures are essential for a goal-oriented transformation and where I believe the European Commission should readjust its plans.
The European Commission has certainly imagined a lot with the European Green Deal. In order to give a small preview of the coming weeks, I can already say that the plan for a transformation of the economy is not as mature as one might think and that many challenges are yet to come.